g On January 1, 2020, Marigold Company issued 10-year, $1,890,000 face value, 6% bonds, at par. Each $1,000 bond is convertible

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g On January 1, 2020, Marigold Company issued 10-year, $1,890,000 face value, 6% bonds, at par. Each $1,000 bond is convertible

into 16 shares of Marigold common stock. Marigold’s net income in 2020 was $470,000, and its tax rate was 20%. The company had 94,000 shares of common stock outstanding throughout 2020. None of the bonds were converted in 2020. (a) Compute diluted earnings per share for 2020.

Business

1 answer:

Yanka [14] · Answer 1 · 2022-03-07T19:14:02+03:00

Answer:

$3.78

Explanation:

The First step is to calculate basic earning per share then making the adjustments to the basic earning per share to arrive to a diluted earning per share.

Basic Earning per Share = Earnings Attributable to Holders of Common Stock / Weighted Average Number of Common Stock Holders.

Earnings Attributable to Holders of Common Stock Calculation :

Net Income $470,000

Less Bond Interest ($1,890,000×6%×80%) ($90,720)

Earnings Attributable to Holders of Common Stock $379,280

Weighted Average Number of Common Stock Holders Calculation :

Outstanding Common Shares 94,000

Weighted Average Number of Common Stock Holders 94,000

Basic Earning per Share = $379,280 / 94,000 = $4.03

Diluted Earnings per Share = Adjusted Earnings Attributable to Holders of Common Stock / Adjusted Weighted Average Number of Common Stock Holders.

Adjusted Earnings Attributable to Holders of Common Stock Calculation :

Earnings Attributable to Holders of Common Stock $379,280

Add Back Bond Interest ($1,890,000×6%×80%) $90,720

Adjusted Earnings Attributable to Holders of Common Stock $470,000

Adjusted Weighted Average Number of Common Stock Holders.

Outstanding Common Shares 94,000

Add Convertible Bonds ($1,890,000/$1,000×16) 30,240

Adjusted Weighted Average Number of Common Stock Holders 124,240

Diluted Earnings per Share = $470,000 / 124,240 = $3.78